Tax Planning - Record Keeping

Tax records should be maintained on a year-round basis, not hastily assembled just prior to your annual tax appointment. Without tax records, you can lose valuable deductions by forgetting them on your tax return, or, if you are audited, you may find that you have unsubstantiated items disallowed.

Generally, returns can be audited for up to three years after filing. However, the IRS may audit for up to six years if there is substantial unreported income. The three- and six-year limits begin with the filing of a tax return; if no return is filed, the time limit never starts to run.

Which records are important?

Following are some of the more common ones:

Records of income received

Expense items, especially work-related

Home improvements, sales, and refinances (for homes with profit potential of $250,000 or more)

Investment purchases and sales information

The documents for inherited property

Medical expenses

Charitable contributions (records vary with value of gift)

Interest and taxes paid

Records on nondeductible IRA contributions

Annual statements for investment account

How long you should retain records is partly a matter of judgment and a combination of state and federal statutes of limitations. As mentioned earlier, federal tax returns can be audited for up to three years after filing (six years if under-reported income is involved). Thus, it is prudent to keep most records for six years after the return filing date.

Some records are worth retaining permanently, partly due to long-term needs. Consider permanently retaining a copy of each year's tax return. Contracts, real estate buy/sell records, and records of property improvements should be retained for seven years after the property is sold.

If you are in business, your record requirements will be more extensive. Please call us and we’ll be delighted to help you develop an effective system of record retention.

Wyndelts & Company, PLC Certified Public Accountants

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At Wyndelts & Co., we take a special pride in our deep and comprehensive knowledge of business, accounting and, particularly, tax law. But, in our clients’ opinion, what truly distinguishes Wyndelts & Co. from other firms is our singular dedication to understanding each of our client’s financial circumstances and objectives. Ultimately, our ability to position our clients for success flows directly from knowing our clients as well as we know tax law.

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